Wall Street's walking into a Macau trap

ReutersAn attendant (R) dressed as the Chinese God of Wealth stands in front of slot machines at the Global Gaming Expo (G2E) Asia in Macau, China May 19, 2015.

We’re starting to hear talk around Wall Street — people are saying the worst is over in Macau.

“With the central and Macau governments essentially putting a ‘policy floor’ on the industry revenue, we believe that the worst is over for both GGR [Gross Gaming Revenue] and share prices,” Credit Suisse analysts wrote in a recent note.

Two years ago it would have been unthinkable for the government to try to implement a smoking ban, cap the number of mainland visitors to the island, or arrest a member of casino scion Stanley Ho’s family with 99 prostitutes in one of Stanley Ho’s casinos.

But all of that has happened, and month after month since last summer gambling revenue has fallen between 30% and 50% from the same time the year before.

Credit Suisse, however, sees a silver lining. It believes that the government is going to start supporting the industry again instead of actively destroying it.

Of course, their note doesn’t describe what the government’s supportive policies are or could be, per se.

It just seems that the bank is optimistic about a recent relaxation of travel visas to the island.

For one thing, a smoking ban at casinos is working its way through Macau’s legislature. According to reports, Macau’s Secretary for Social Affairs and Culture Alexis Tam said on Thursday that the only way to get rid of second-hand smoke is to completely ban smoking. Proponents of the ban admit that it will hurt casino revenues, but again, they’re still proponents. If the ban passes, it will go into effect in 2016.

Additionally, as Wells Fargo’s Cameron McKnight wrote in a recent note, Xi’s anti-corruption drive is ramping up again, not slowing down.

“The Central Commission for Discipline Inspection (CCDI) announced earlier this week that it has started its next round of corruption inspections,” he wrote. “In this round, the CCDI is targeting 26 government bodies and state-owned companies, including the Ministry of Transport, the “People’s Daily,” and the National Railway Administration.”

What that means is that if you work at a state-owned company, you might not want to advertise the fact that you’re living it up at Macau’s casinos.

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